Accounting · Accounting Principles
A company received ₹6,00,00,000 as an advance in March 2025 for a software maintenance contract to be provided in the next financial year. How should this transaction be treated according to the Revenue Realisation Concept?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The amount should be credited to the Capital Reserve because it is a large one-time receipt that does not occur in the normal course of daily business.
- 2Only 50 percent of the amount should be recognized as revenue now to maintain a balance between the current and future years.
- 3The amount should be treated as a liability called Unearned Revenue in the current year and recognized as income only in the next financial year as services are rendered.✓
- 4The entire amount should be recognized as revenue in the current year because the cash has been received and the contract is legally binding.
Correct answer
The amount should be treated as a liability called Unearned Revenue in the current year and recognized as income only in the next financial year as services are rendered.
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